- Crude prices down about 1% or more as week opens in Asia
- Fed expected to leave rates unchanged in Nov, but with inflation running hotter than desired, markets queasy over what central bank could do going forth
- Traders struggle to assign a war premium for oil without any visible impact on barrels moving in waters around the war zone
- Aside from Fed on Wednesday, the other big thing to look out for is US job report for Oct, due on Friday
Israel is pounding Gaza non-stop and from all fronts to get to Hamas. But, oil traders seem more concerned right now about what the Federal Reserve might do or say at the central bank’s rate decision on Wednesday and how the US job numbers for October will turn out on Friday, than the Middle East’s raging war that practically had markets on tenterhooks last week.
This is also despite gold pushing for new 2023 highs above $2,000 an ounce as those long the yellow metal fully embraced its safe-haven appeal.
Oil prices fell as the week opened in Asia, reversing a bulk of gains made in the prior session, as anticipation of the Fed meeting and key economic readings this week spurred some profit-taking.
New York-traded West Texas Intermediate, or WTI, crude for delivery in December was at $84.37 a barrel by 14:45 in Singapore (02:45 New York), down $1.17, or 1.4%. The session low was $83.77.
For all of last week, the US crude benchmark fell 3% in one of the most volatile weeks since the year began as traders struggled to ascertain a war premium for oil.
“WTI’s charts show the door is open for a retest of its first support zone of $83.50, followed by $82.50,” said Sunil Kumar Dixit, chief technical strategist at SKCharting.com.
“Weakness below $82.50 can bring $81, while major support is seen at $79.50. Of course, this is barring the impact of the war."
London-traded Brent crude for the most-active December contract was at $88.22, down 98 cents, or 1.1%. The session low for December crude was $88.02. Last week, the global crude benchmark slid nearly 2%.
It would be remiss to say traders aren’t on the lookout for headlines on the war in the Middle East, after Israel launched at the weekend its much-anticipated ground assault on Gaza.
But without any signs of further escalation of the conflict on Monday — and, more importantly, without any disruption still in the countless numbers of barrels of oil moving around in waters very close to the war zone — the war premium risk for crude was back down, said those in the know.
Fed Decision, US Jobs, China PMIs: A Data-Heavy Week Awaits
Oil markets were largely on edge before the Fed meeting on Wednesday, with any hawkish signals from the central bank presenting more headwinds for crude demand.
The Fed is widely expected to keep rates on hold this week. But officials have still kept the door open for one more rate hike this year, especially following several hotter-than-expected inflation readings.
The dollar steadied on Monday, retaining recent gains and weakening international demand for crude, which is priced in the US currency.
The key piece of economic data this week will, however, be Friday’s non-farm payrolls report for October.
After a blockbuster 336,000 jobs were added in September, economists are expecting more moderate jobs growth of 182,000, which is still consistent with a robust labor market.
The unemployment rate is expected to remain at 3.8%, while wage growth is expected to ease to 4% year-on-year, which would mark a post-pandemic period low.
This could help bolster the Fed’s view that price pressures are easing and that it doesn't need to raise interest rates any further.
Ahead of Friday’s data, market participants will be looking at data on third-quarter employment costs on Tuesday for signs that wage growth is moderating.
But before the Fed meeting, markets are also awaiting key purchasing managers index data from China, which is set to shed more light on business activity in the world’s biggest oil importer.
China’s economy has shown some signs of stabilizing in recent months after seeing a sharp decline in growth this year.
The country’s aviation regulator recently said it will increase domestic flights to 34% above pre-pandemic levels- a positive sign for oil demand, although air travel still makes up a small portion of the China’s overall fuel consumption.
The Bank of Japan is also set to meet on Tuesday, with traders pricing in a potential policy shift in the bank as it grapples with rising inflation.
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Disclaimer: The aim of this article is purely to inform and does not in any way represent an inducement or recommendation to buy or sell any commodity or its related securities. The author Barani Krishnan does not hold a position in the commodities and securities he writes about. He typically uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables.